Grand Canyon Institute stands by finding that public employees are underpaid

We’ve heard many attacks on public employees this year, even though, like most Arizonans, they’ve struggled with rising workloads and stagnant pay levels. Still, the Goldwater Institute claims public unions covering employees like teachers, police and firefighters are costing state and local governing entities $550 million above market compensation.

Given the way their calculation was derived, they should be far more circumspect before critiquing the Grand Canyon Institute’s finding that public employees are undercompensated by 6 percent.

For the Grand Canyon Institute, we ran a thorough analysis of Arizona public employee compensation relative to private compensation, and find that when you do your best to compare workers with the same experience, education levels, gender, ethnicity and size of employer, that on an hourly basis public employees in Arizona receive 6 percent less in hourly compensation than their private sector counterparts, with state employees fairing worst at a

10.4 percent deficit and local government workers falling short by 3.4 percent. This includes pay and benefits such as health insurance and retirement fund disbursements.

Unlike the Goldwater analysis, our data set includes a random sample of 10,000 demographically detailed Arizona workers in both the public and private sector. The Goldwater Institute relied on statewide averages, so Arizona was but one point among all the states. In addition, Goldwater inexplicably failed to control sufficiently for other factors that economists routinely use, namely experience and education, as public sector workers have higher levels of education and somewhat more experience than those in the private sector.

When we added more appropriate controls to Goldwater’s model, we found rather bizarre results, where more education meant less pay or more experience meant less pay. We expect this result is due to using statewide aggregates rather than individual workers, combined with the unique combination of specialty occupations like police officers, who typically only require a high school degree and are frequently also members of unions and have no fair private sector comparison. Bottom line, aggregate data with Arizona as one data point doesn’t give you reliable estimates.

We also object to the Goldwater Institute’s Nick Dranias’ criticisms of our model. Dranias says we do not include paid leave. He’s mistaken. The Bureau of Labor Statistics Current Population Survey includes all pay received, including vacation, sick time, and holiday pay for our 10,000 randomly selected full-time workers.

Dranias also criticizes our controlling for employer size. This is part of our apples to apples comparison. Would you expect the director of marketing for the Goldwater Institute to be paid the same as the director of marketing at US Airways? We don’t, so we include a variable for how large the employer is. So, our public-private differential is independent of employer size influences.

Finally, Dranias suggests that controlling for high school, associate, bachelor’s, master’s, professional and doctorate degrees is not good enough, even though the Goldwater Institute analysis didn’t bother to do so. Dranias argues some degrees, like engineering, have a higher payoff than a degree like education. We’re not aware of any dataset that economists routinely use that includes specific degrees earned, yet despite that limitation, these datasets work remarkably well in showing payoffs to education across large numbers of individuals.

Unions may well exert upward pressure on wages, but in Arizona, Goldwater and others are exaggerating that impact. In Arizona, public sector employees choose whether or not to belong to their unions; membership is not required. The state also has left collective bargaining as an option, not a mandate for employers. Local jurisdictions may voluntarily meet with union representatives as good human resource policy, but are not required to do so.

Arizona does face real fiscal challenges in the years ahead, but blaming hard working public employees, whether unionized or not, for those challenges is misplaced.

— Jeffrey Keefe and Dave Wells are Grand Canyon Institute fellows who wrote the report, “Are Arizona Public Sector Workers Overcompensated?” Keefe is an associate professor of labor and employment relations at the School of Management and Labor Relations at Rutgers University, and Dave Wells is a senior lecturer with a doctorate in political economy and public policy at Arizona State University.